NJ Turnpike privatization centerpiece of governor's budget

New Jersey Governor Jon Corzine has made privatization of the New Jersey Turnpike the centerpiece of his budgetary strategy for the state - greatly raising the stakes in the debate over its wisdom. In his budget address Feb 22 the former investment banker said:

"Potentially, asset monetization (the NJ term for privatization via sale or longterm leasing) could reset the state's finances by dramatically reducing our debt burden, and consequently reducing debt service. Monetization could free up as much as a billion dollars or more in every year's budget - long into the future... Asset monetization gives us the potential to reduce our crushing debt burden - and meet New Jersey's long-term capital needs in a way no other alternative provides."

He listed the Turnpike first among various state assets being considered.

Corzine said that borrowing or using the proceeds of privatization for covering operating costs is "a terrible idea" and "not under consideration."

The Governor's whole speech was structured to present a conclusion that the state has no choice but to privatize major state owned assets because all the alternatives are unacceptable.

"To take this option off the table is to accept some combination of hand-to-mouth budgets without capital or social investments. Whatever choices we make, I think it's time for a new paradigm for the state's fiscal future."

Huge cost increases unavoidable

Costs of the state are projected to rise over the next five years as follows:

- debt service $2.7b to $3.4b

- healthcare costs for state workers and retirees $1.4b to $2.8b

- retired teachers medical costs $0.75b to $1.8b

- pension fund costs $1.3b to $3.3b

"Let's get real..."

Having listed these Gov Corzine said: "Let's get real - there is no way to close the structural deficit with the avalanche of growing fixed costs that hang over the state. It's just not going to happen unless we change. So we have choices to make - tough choices. We can continue struggling every year - scraping by with duct tape and baling wire, and pulling together no frill, investment-free budgets. Or we can change course."

Corzine rejected higher taxes as a solution since taxes are already too high, and he rejected layoffs of state workers. 10,000 workers would need to be laid off for every $500m/yr saved.

He added: "So, we pretty much know the impact of more tax hikes or massive layoffs, and we can all handicap the likelihood of either happening."

"Monetization" being studied everywhere

"The one option that is new and that we are now studying is asset monetization.
It's something that has been implemented in other states and successfully around the globe. I think it's fair to say that most governmental entities across the country are examining its feasibility and appropriateness. The economic potential from restructuring the state's interest in our asset portfolio is too significant to ignore whether that asset is the Turnpike, the lottery, naming rights, air rights, or whatever."

But subject to protections

Corzine reiterated that with any proposal, "we would insist on protective conditions."

He listed them:

"If we can't ensure that the high standards of operations and maintenance will continue, we won't proceed.

"If we can't ensure public safety will be maintained, we won't proceed.

"If we can't ensure the state will maintain oversight in the governance of the asset, we won't proceed.

"If we can't ensure that price increases will be predictable and reasonable, we won't proceed...

"We intend to give asset monetization, and all its derivatives, the same level of serious focus we've given to property tax relief and reform. To take this option off the table is to accept some combination of hand-to-mouth budgets without capital or social investments. Whatever choices we make, I think it's time for a new paradigm for the state's fiscal future."

Opposition bills

AP reports that the state's house transport committee "plans to debate" bills hostile to the Governor's privatization plans that would:?

- prohibit the state from contracting with a private company to operate highways?

- require voters approval of any the sale or lease of any state asset worth more than $100m

- ban the state from leasing and selling transportation facilities to "foreign" companies

Various politicians are talking of introducing bills like this but, as of Feb 25, none has so far actually been introduced.

see http://www.njleg.state.nj.us/bills/BillsByKeyword.asp - stick in "Turnpike"